ACCC grants conditional authorisation for an alliance between Qantas and Emirates

27 March 2013

The Australian Competition and Consumer Commission has decided to grant authorisation, subject to a condition, for an alliance between Qantas Airways Limited and Emirates until 31 March 2018.

The alliance will involve coordination of the airlines’ passenger and cargo transport operations and other related services.

“The ACCC considers that the alliance is likely to result in public benefits through enhanced products and service offerings by the airlines, and improved operating efficiency,” ACCC Chairman Rod Sims said.

“In particular, the alliance is likely to provide Qantas and Emirates customers with increased access to a large number of existing frequencies and destinations under a single airline code, improved connectivity and scheduling, and access to each alliance partner’s frequent flyer programs. The alliance is also likely to provide the airlines with increased flexibility to manage their fleet.”

“Taking all of this together, the ACCC is satisfied that the alliance is likely to result in material, but not substantial, public benefits.”

“The ACCC considers that the alliance is likely to result in detriments through its effect on competition in regions where Qantas and Emirates currently offer competing air passenger and cargo transport services. However, in most of these regions, the ACCC has identified competitive constraints which mean that these detriments are likely to be minimal,” Mr Sims said.

“The one exception is the trans-Tasman where Qantas and Emirates compete on four routes which accounted for around 65% of total passenger capacity between Australia and New Zealand in the year to 30 June 2012. On these routes, the ACCC is concerned that Qantas and Emirates will have the ability and incentive to reduce or limit growth in capacity in order to raise airfares.”

In order to address this concern, the ACCC has imposed a condition of authorisation which requires the airlines to maintain at least their pre-alliance aggregate capacity on the four overlapping trans-Tasman routes, subject to a review to consider whether increases in the minimum required capacity are warranted.

With this condition, the ACCC is satisfied that the relevant net public benefit tests are met.

“The ACCC has assessed the public benefits and detriments of the alliance on the basis that the scope of Qantas’ international operations in the likely future without the alliance is not materially different to the likely future with the alliance. In particular, the ACCC does not accept or rely on the claim that Qantas International is in “terminal decline” and unable to compete effectively or operate profitably absent the alliance,” Mr Sims said.

The conduct authorised by the ACCC enables the airlines to coordinate their passenger and cargo transport operations and related services (including line maintenance engineering services and flight training for air crew and cabin crew) as well as joint procurement of goods and services (such as aviation fuel). Qantas and Emirates have not sought authorisation for the supply to third parties of catering and aircraft cleaning services, where coordination between the two airlines may give rise to competition concerns.

The ACCC has amended the interim authorisation granted on 17 January 2013 to reflect the terms of the final determination. Interim authorisation will remain in force until the ACCC’s decision comes into effect.

Authorisation provides protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.